The new stimulus will be paid for from government reserves. Prime Minister Yoshihiko Noda's leeway to boost spending is limited by a legislative standoff preventing issuance of deficit-covering bonds as the country faces a "fiscal cliff" of some $479 billion.
Noda has ordered the government to draft further measures to boost growth by next month, and the legislature is due to convene an extraordinary session on Monday.
Chief Cabinet Secretary Osamu Fujimura said Noda told the Cabinet the package was meant to speed up Japan's revitalization and help end a long and debilitating spell of deflation.
Friday's decision coincided with news of a 0.1 percent fall in the consumer price index in September, adding to pressure on the central bank to ease policies to help fight deflation, or falling prices, which can hinder economic growth.
National policy minister Seiji Maehara has been among the most vocal officials pushing the Bank of Japan to do more to boost growth, sitting on central bank board meetings to emphasize the government's desire for more action.
Japan's economy has remained in the doldrums for over 20 years and a hoped-for export-led recovery has been stymied by the European crisis and slowing growth in China and elsewhere.
Many economists believe there is a growing risk of a recession, contrary to the central bank's expectations of a pickup in growth later in the year.
Although interest rates are near zero, the bank could further expand its asset-buying program to convince markets it is determined to break out of Japan's deflationary slump, said Matthew Circosta, an economist with Moody's Analytics in Sydney, Australia.
"If they have an inflation goal of 2 percent or 3 percent they should pull out all stops to achieve it," he said. "They've just got to be more aggressive than they are now," he said.
The stimulus package includes more than $3.3 billion on disaster prevention and spending on projects and subsidies to help along the lagging recovery along the northeastern coast, where the magnitude 9.0 earthquake on March 11, 2011 and ensuing tsunami left more than 19,000 people dead or missing.
A big chunk of that is to go to support for small- and medium-size businesses. It also earmarks some $514 million for renewable energy projects.
The package will pay for more ships and helicopters for Japan's Coast Guard, which has sought additional resources to help it patrol territorial waters being contested by China.
The government is also pledging $47.5 million for support of research related to work by Shinya Yamanaka, winner of the 2012 Nobel Prize in medicine, on reprogramming mature human cells into stem cells a discovery that could lead to new treatments for various diseases.